Student Loan Borrowers With Smaller Loans Have $1.2 Billion In Debts Forgiven

KEY TAKEAWAYS

• Student loan borrowers who took out less than $12,000 and have made payments for 10 years will have their loans forgiven.
• The accelerated forgiveness was supposed to go into effect in July but was unexpectedly moved forward earlier this year.
• This forgiveness is part of a broader attempt by President Joe Biden to forgive student loans after the Supreme Court struck down a broad attempt last year.

Student loan borrowers who took out less than $12,000 to go to college and paid on their loans for 10 years are having their federal debts forgiven faster than they’d initially been told. 

The Department of Education is forgiving $1.2 billion in loans for 153,000 borrowers who qualify for forgiveness under the new SAVE plan, the White House said Tuesday. Under a newly implemented provision of the SAVE plan, borrowers who took out small loans to pay for college have their debts forgiven after they make income-based payments for 10 years. That’s shorter than the 20 years for larger undergraduate loans or 25 for grad school debt.

The accelerated forgiveness under the plan was originally supposed to go into effect in July but was unexpectedly moved forward earlier this year. 

The SAVE plan, the student loan repayment program created by President Joe Biden this summer after his attempt to provide broad student loan forgiveness was shot down by the Supreme Court, has gained traction in recent months. As of Tuesday, 7.5 million people were enrolled in SAVE, up from 5.5 million in October, the department said.

“We're providing real immediate breathing room from an unacceptable reality where student loan payments compete with basic needs like putting food on the table,” Secretary of Education Miguel Cardona said in a conference call with reporters.

Under SAVE, borrowers with federal student loans make payments equaling 10% of their discretionary income, an amount that’s set to be cut in half this summer. After paying for 20 years (or 10 in the case of loans under $12,000) anything left over is forgiven. For borrowers with anything less than high incomes, the plan is far easier on monthly budgets than previous income-driven repayment plans, so much so that many borrowers have been surprised at how low their payments are.

The department is sending out emails to borrowers informing them that their loans are being forgiven, Cardona said on a conference call with reporters.

Despite the June Supreme Court ruling that Biden’s plan to forgive up to $20,000 per borrower was unconstitutional, the administration has forgiven student debt for a significant chunk of the nation’s 40 million student loan borrowers by rewriting the rules of existing programs. By changing how the Public Service Loan Forgiveness program works, as well as by implementing the SAVE plan and several other reforms, Biden has forgiven $138 billion for 3.9 million borrowers.

Meanwhile, the department is hammering out the details of a second swing at a broader student loan forgiveness program that would relieve debt for borrowers in financial hardship, among others. Those rules are expected to be finalized later this year.